Docket No.

23195
Court of Appeal of California, Third District

BMW of North America, Inc. v. New Motor Vehicle Board

162 Cal.App.3d 980 (Cal. Ct. App. 1984) • 209 Cal. Rptr. 50
Decided Dec 18, 1984

Docket No. 23195. In this appeal we consider the statutory restrictions

on the modification of automobile dealer
December 18, 1984.
franchises under the New Motor Vehicle Board
Appeal from Superior Court of Sacramento Act. (Veh. Code, § 3000 et seq.) BMW of North
County, No. 309794, William A. White, Judge. America, Inc. petitioned for a writ of
981 *981 administrative mandate pursuant to Code of Civil
Procedure section 1094.5, directing the respondent
COUNSEL
New Motor Vehicle Board of the State of
Lewis, D'Amato, Brisbois Bisgaard, Roy M. California (Board) to vacate its decision allowing
Brisbois, Weil, Gotshal Manges, Salem M. Katsh, the protest of the establishment of a new dealer
Michael A. Epstein, Bryan R. Dunlap and Sanford filed by real party in interest Hal Watkins
F. Remz for Plaintiff and Appellant. Chevrolet, Inc., and to enter a new decision
denying the protest. The trial court denied the
Gene Erbin, Elizabeth A. Mulroy, McCuthchen,
petition and BMW appeals. BMW contends that
Black, Verleger Shea, Howard K. Privett, Franklin
the composition of the board is unconstitutional,
H. Wilson, Michael M. Johnson, William H.
that the Board lacks jurisdiction over the Watkins
Crabtree and Charles H. Lockwood as Amici
protest, and that the Board's interpretation of the
Curiae on behalf of Plaintiff and Appellant.
relevant statutory provisions is constitutionally
John K. Van de Kamp, Attorney General, N. impermissible. We need not consider the
Eugene Hill, Assistant Attorney General, Harold constitutional questions raised because we
W. Teasdale and Gordon Zane, Deputy Attorneys conclude that as a matter of law the Board acted in
983 General, for Defendant and Respondent. *983 excess of its jurisdiction in allowing the Watkins
protest. We therefore reverse the judgment and
Crow, Lytle, Gilwee, Donoghue, Adler Weninger, remand to the trial court with directions to issue a
Richard E. Crow and James R. McCall as Amici writ of mandate.
Curiae on behalf of Defendant and Respondent.
FACTS
Pilot Spar, A. Albert Spar, Michael J. Flanagan
and June Spar for Real Party in Interest and Hal Watkins is the sole shareholder of Hal Sales,
Respondent. Inc. Hal Sales, Inc., in turn owns the majority of
the stock in Hal Watkins Chevrolet, Inc. In 1974
Hal Watkins applied to become a franchised dealer
982 *982
for BMW automobiles. At that time Hoffman
Motors Corporation was the North American
OPINION
importer of BMW automobiles. Hoffman accepted
the application and entered into a franchise
SPARKS, J.

1
 BMW of North America, Inc. v. New Motor Vehicle Board 162 Cal.App.3d 980 (Cal. Ct. App. 1984)

agreement with Watkins. Since that time two such waiver, amendment, modification, change,
inconsequential changes have occurred. First, addition, deletion, or agreement is made in writing
Hoffman Motors Corporation has been succeeded and signed by BMWNA and Dealer as set forth in
by plaintiff BMW of North America as the BMW Article H of this Dealer Agreement."
importer for North America. Second, although the
Watkins opened Hal Watkins' BMW in Camarillo,
application was on behalf of Hal Sales, Inc., the
in Ventura County. From time to time BMW had
actual franchise agreement is held on behalf of Hal
inquiries from other dealers, particularly Paul
Watkins Chevrolet, Inc.
Rusnak, concerning the possibility of opening a
The franchise agreements under which Watkins franchise in the Thousand Oaks-Westlake area of
and BMW have operated have been limited-term Ventura County. Eventually, after a market study
contracts of one year with provision for renewal of the region, BMW determined to appoint
984 and *984 extension by BMW unless it acts to Rusnak as a BMW dealer in the Thousand Oaks-
terminate the agreement in accordance with the Westlake area. Rusnak was to open his dealership
contract provisions. Each succeeding agreement in late 1982 or early 1983. Rusnak's franchise was
has an annual effective date of January 1. Each of to be located 15.2 miles from Watkins' Camarillo
the succeeding agreements contained a clause of facility, and 16.2 miles from the next closest
which the 1982 agreement is typical: "BMWNA dealership in Canoga Park, Los Angeles County.
hereby appoints Dealer [Watkins] as a retail dealer BMW and Rusnak signed a letter of intent and
of BMW Products and grants Dealer the Rusnak began preparations for the opening of his
nonexclusive right to buy BMW Products, all in franchise.
accordance with, and subject to, the provisions of
Watkins filed a protest with the New Motor
this Agreement. Dealer accepts such appointment
Vehicle Board, alleging that the appointment of
and agrees to be bound by all of the terms and
Rusnak as a BMW dealer in Ventura County
conditions of the Agreement. Dealer recognizes
constituted a modification of his franchise
and agrees that its appointment as a Dealer in
agreement. After a lengthy administrative hearing
BMW Products does not confer upon it the
the administrative law judge prepared a proposed
exclusive right to deal in BMW Products in any
decision in which he concluded that the
specific geographic area. Nothing contained in the
appointment of Rusnak constituted a modification
Agreement shall limit, or be construed to limit, the
of Watkins' franchise agreement and that there was
geographical area within which, or the persons to
not good cause for the modification. In particular
whom, Dealer may sell BMW Products. BMWNA
the administrative law judge found that BMW
reserves the right to grant or confer rights and
985 *985 failed to prove: (1) the amount of business
privileges covering the sale and servicing of
transacted by Watkins is inadequate as compared
BMW Products upon such other Dealers selected
to the business available; (2) the investment made
and approved by BMWNA, whether located in
and obligations incurred by Watkins was not
Dealer's geographic area or elsewhere, as
substantial; (3) Watkins' investment was not
BMWNA, in its sole discretion, shall deem
permanent; (4) it would be beneficial to the public
necessary or appropriate." The agreements have
welfare for the franchise to be modified; (5)
further provided: "No representative of BMWNA
Watkins does not have adequate sales and service
shall have authority to waive any of the provisions
facilities or is not rendering adequate services; (6)
of the Agreement or to make any amendment or
Watkins failed to fulfill warranty obligations; and
modification of or any other change in, addition
(7) Watkins failed to comply with the terms of the
to, or deletion of any portion of the Agreement . . .
franchise. On January 12, 1983, the New Motor
or which renews or extends the Agreement; unless

2
 BMW of North America, Inc. v. New Motor Vehicle Board 162 Cal.App.3d 980 (Cal. Ct. App. 1984)

Vehicle Board adopted the proposed decision as its members upon, but may not decide," any dispute
decision in the matter. This writ proceeding between a dealer and a manufacturer. (Stats. 1979,
followed. 986 ch. 340, §§ 1-2, pp. 1206-1207.) *986 The stated
urgency for the legislation was so that the
DISCUSSION "educated and needed advice of New Motor
In 1967 the Legislature established the New Car Vehicle Board members who are themselves new
Dealers Policy and Appeals Board to hear appeals motor vehicle dealers may be utilized in the
of new car dealer licensing decisions of the decision making process of the board. . . ." (Stats.
Department of Motor Vehicles. (See Veh. Code, § 1979, ch. 340, § 3, p. 1207.)
3000 et seq., added by Stats. 1967, ch. 1397, § 2,
After the trial court's decision in this case, the
p. 3261 et seq.) At that time the duties of the
Court of Appeal for the First District held in
Board were similar to those of other occupational
Chevrolet Motor Division v. New Motor Vehicle
licensing boards, and, as is common with such
Bd. (1983) 146 Cal.App.3d 533, at page 541 [ 194
other boards, the Legislature mandated that four of
Cal.Rptr. 270], that the mere fact the new motor
the nine members be new car dealers. (Stats. 1967,
vehicle dealer members of the board do not
ch. 1397, § 2, pp. 3261-3262.) In 1973 the
technically decide the issues does not cure the
Legislature changed the name of the Board to the
constitutional problem of submitting disputes to a
New Motor Vehicle Board, and added sections
biased tribunal, and hence the statutory procedure
3060 to 3069 to the Vehicle Code. (Stats. 1973, ch.
remains constitutionally defective. In Nissan
996, § 16, pp. 1967-1971.) Among other things,
Motor Corp. v. New Motor Vehicle Bd. (1984) 153
those sections empower the Board to determine
Cal.App.3d 109, at page 115 [ 202 Cal.Rptr. 1],
whether there is good cause for the termination,
another division of the same court agreed with the
refusal to renew or continue, or the modification
holding in Chevrolet Motor Division.
of an existing franchise agreement (Veh. Code, §
3060), and whether there is good cause not to The parties renew the dispute whether the
relocate or establish a motor vehicle dealership in procedural provisions for the adjudication of
a relevant market area (Veh. Code, § 3062). In dealer protests before the New Motor Vehicle
American Motors Sales Corp. v. New Motor Board satisfy the requirements of due process and,
Vehicle Bd. (1977) 69 Cal.App.3d 983, at pages if not, whether recusal of the new motor vehicle
987 to 992 [ 138 Cal.Rptr. 594], this court held the dealer members of the Board from participation in
requirement that four of the nine board members the decision cures any deficiency in the
be new car dealers created a slanted adjudicatory legislation. BMW additionally contends that the
tribunal and thus denied the manufacturer litigants Board's construction of the relevant statutory
procedural due process of law. provisions was itself unconstitutional. We are
urged by BMW to follow Chevrolet Motor
In reaction to the decision in American Motors,
Division and declare the composition of the Board
the Legislature amended Vehicle Code sections
to be unconstitutionally biased in violation of due
3050 and 3066 to provide that the new car dealer
process of law. Watkins argues that both the
members of the Board could not participate in,
Chevrolet Motor Division case, and our decision
deliberate on, hear or consider, or decide any
in American Motors upon which it relies, conflict
matter involving a dispute between a manufacturer
with various federal decisions and with the
and a dealer. (Stats. 1977, ch. 278, §§ 2-3, pp.
opinion of the California Supreme Court in
1171-1173.) In 1979 the Legislature enacted
Andrews v. Agricultural Labor Relations Bd.
urgency legislation to provide that the new motor
(1981) 28 Cal.3d 781 [ 171 Cal.Rptr. 590, 623
vehicle dealer members of the Board "may
P.2d 151].1 In essence, Watkins contends that the
participate in, hear, and comment or advise other

3
 BMW of North America, Inc. v. New Motor Vehicle Board 162 Cal.App.3d 980 (Cal. Ct. App. 1984)

asserted economic interest of dealer board the claim before him." ( Andrews v.
members is too speculative, contingent and Agricultural Labor Relations Bd. (1981) 28

uncertain to rise to the level of bias which would Cal.3d 781, 790 [ 171 Cal.Rptr. 590, 623
P.2d 151].)
deprive manufacturers of a fair and impartial
hearing. In resolving this dispute we need not, and 2 The decision in Fox did not settle all
therefore do not, reach the constitutional questions questions of the constitutionality of the
raised. We conclude instead that as a matter of law regulatory scheme. That decision only
the Board acted in excess of its jurisdiction and addressed the "narrow question . . .
987 erred in allowing the Hal Watkins protest. *987 (1) whether California may, by rule or statute,
There can be no question that the relationship temporarily delay the establishment or

between automobile manufacturers and retail relocation of automobile dealerships

dealers is a relationship that is subject to pending the Board's adjudication of the

protests of existing dealers." (439 U.S. at p.
governmental regulation. In New Motor Vehicle
106 [58 L.Ed.2d at p. 373].) The Court
Bd. v. Orrin W. Fox Co. (1978) 439 U.S. 96 [58
decided that regulation is permissible, but
L.Ed.2d 361, 99 S.Ct. 403], the United States
in doing so expressly noted that
Supreme Court considered whether California
California's regulatory scheme was clearly
could, by rule or statute, temporarily delay the articulated and affirmatively expressed,
establishment or relocation of an automobile and that disputes were to be determined by
dealership pending the adjudication of an existing an impartial tribunal. ( Id., at pp. 107-108,
dealer's protest. The Court concluded that a state 109 [58 L.Ed.2d at pp. 374, 376].)
may constitutionally require the manufacturer to Different questions are raised where, as is
secure regulatory approval before engaging in alleged here, the Legislature has since
specified practices. (439 U.S. at p. 108 [58 acted to create a biased rather than
L.Ed.2d at p. 374].) The California Legislature, impartial tribunal, and the tribunal acts in a

the high court found, "was empowered to manner which is not pursuant to clearly

subordinate the franchise rights of automobile articulated and affirmatively expressed

statutory or regulatory provisions.
manufacturers to the conflicting rights of their
franchisees where necessary to prevent unfair or The provisions of California's regulatory scheme
oppressive trade practices." ( Id., at p. 107 [58 involved here are contained in Vehicle Code
L.Ed.2d at pp. 374, 376].)2 sections 3060 through 3063, which are set out in
1 Andrews involved the denial of a motion to full in the margin.3 The first portion of section
disqualify a temporary administrative law 988 3060 precludes a franchisor *988 from terminating
officer in an unfair labor practices hearing. or refusing to continue an existing franchise
The ground for bias was the officer's without compliance with certain procedural
practice of law with a firm which had 989 provisions and, if a protest is filed, unless *989 the
previously represented farm workers in a Board finds that there is good cause for the
suit against the Secretary of Labor and termination or refusal to continue. The second
which had engaged in employment
portion of section 3060 precludes a franchisor
discrimination suits on behalf of Mexican-
from modifying or replacing a franchise with a
Americans. Holding that the hearing officer
succeeding franchise if the modification or
did not err in refusing to disqualify
replacement would substantially affect the
himself, the court noted that the "right to an
franchisee's sales or service obligations or
impartial trier of fact is not synonymous
with the claimed right to a trier completely
investment, unless the franchisor complies with
indifferent to the general subject matter of certain procedural provisions and in the event of a
protest the Board finds good cause for the

4
 BMW of North America, Inc. v. New Motor Vehicle Board 162 Cal.App.3d 980 (Cal. Ct. App. 1984)

modification or replacement. Section 3061 Vehicle Code if you oppose this action. It is
provides the factors to be considered by the Board important that you act promptly.' [¶] (b)

in determining whether good cause has been The board finds that there is good cause for
termination or refusal to continue,
established for modifying, replacing, terminating,
following a hearing called pursuant to
or refusing to continue a franchise.
Section 3066. The franchisee may file a
3 Unless otherwise indicated, all further protest with the board within 30 days after
statutory references are to Vehicle Code. receiving a 60-day notice or within 10 days
Section 3060 provides: "Notwithstanding after receiving a 15-day notice. When a
the terms of any franchise, no franchisor protest is filed, the board shall advise the
shall terminate or refuse to continue any franchisor that a timely protest has been
existing franchise unless: [¶] (a) The filed, that a hearing is required pursuant to
franchisee and the board have received Section 3066, and that the franchisor may
written notice from the franchisor as not terminate or refuse to continue until the
follows: [¶] (1) Sixty days before the board makes its findings. [¶] (c) The
effective date thereof setting forth the franchisor has received the written consent
specific grounds for termination or refusal of the franchisee, or the appropriate period
to continue. [¶] (2) Fifteen days before the for filing a protest has elapsed. [¶] The
effective date thereof setting forth the franchisor shall not modify or replace a
specific grounds with respect to any of the franchise with a succeeding franchise if the
following: [¶] (A) Transfer of any modification or replacement would
ownership or interest in the franchise substantially affect the franchisee's sales or
without the consent of the franchisor, service obligations or investment, unless
which consent shall not be unreasonably the franchisor has first given the board and
withheld. [¶] (B) Misrepresentation by the each affected franchisee notice thereof at
franchisee in applying for the franchise. [¶] least 60 days in advance of the
(C) Insolvency of the franchisee, or filing modification or replacement. Within 30
of any petition by or against the franchisee days of receipt of the notice, a franchisee
under any bankruptcy or receivership law. may file a protest with the board and the
[¶] (D) Any unfair business practice after modification or replacement does not
written warning thereof. [¶] (E) Failure of become effective until there is a finding by
the motor vehicle dealer to conduct its the board that there is good cause for the
customary sales and service operations modification or replacement. If, however, a
during its customary hours of business for replacement franchise is the successor
seven consecutive business days, giving franchise to an expiring or expired term
rise to a good faith belief on the part of the franchise, the prior franchise shall continue
franchisor that the motor vehicle dealer is in effect until resolution of the protest by
in fact going out of business, except for the board. In the event of multiple protests,
circumstances beyond the direct control of hearings shall be consolidated to expedite
the motor vehicle dealer or by order of the the disposition of the issue."
department. [¶] (3) The written notice shall Section 3061 provides: "In determining
contain, on the first page thereof, a whether good cause has been established
conspicuous statement which reads as for modifying, replacing, terminating, or
follows: `NOTICE TO DEALER: You may refusing to continue a franchise, the board
be entitled to file a protest with the NEW shall take into consideration the existing
MOTOR VEHICLE BOARD in circumstances, including, but not limited
Sacramento and have a hearing on your to, all of the following: [¶] (a) Amount of
protest under the terms of the California business transacted by the franchisee, as

5
BMW of North America, Inc. v. New Motor Vehicle Board 162 Cal.App.3d 980 (Cal. Ct. App. 1984)

compared to the business available to the that a timely protest has been filed, that a
franchisee. [¶] (b) Investment necessarily hearing is required pursuant to Section
made and obligations incurred by the 3066, and that the franchisor shall not
franchisee to perform its part of the establish or relocate the proposed
franchise. [¶] (c) Permanency of the dealership until the board has held a
investment. [¶] (d) Whether it is injurious hearing as provided in Section 3066, nor
or beneficial to the public welfare for the thereafter, if the board has determined that
franchise to be modified or replaced or the there is good cause for not permitting the
business of the franchisee disrupted. [¶] (e) dealership. In the event of multiple
Whether the franchisee has adequate motor protests, hearings may be consolidated to
vehicle sales and service facilities, expedite the disposition of the issue. [¶]
equipment, vehicle parts, and qualified For the purposes of this section, the
service personnel to reasonably provide for reopening in a relevant market area of a
the needs of the consumers for the motor dealership that has not been in operation
vehicles handled by the franchisee and has for one year or more shall be deemed the
been and is rendering adequate services to establishment of an additional motor
the public. [¶] (f) Whether the franchisee vehicle dealership. [¶] (b) With respect to
fails to fulfill the warranty obligations of the relocation of an existing dealership,
the franchisor to be performed by the subdivision (a) does not apply to any
franchisee. [¶] (g) Extent of franchisee's relocation which is less than one mile from
failure to comply with the terms of the the existing location of the dealership and
franchise." which is to a location within the same
Section 3062 provides: "(a) Except as relevant market area within the same city
otherwise provided in subdivision (b), in where the existing dealership is located. [¶]
the event that a franchisor seeks to enter (c) Subdivision (a) does not apply to the
into a franchise establishing an additional establishment of a branch office for selling
motor vehicle dealership within a relevant vehicles at a fair, exposition, or similar
market area where the same line-make is exhibit that does not exceed 30 days."
then represented, or relocating an existing Section 3063 provides: "In determining
motor vehicle dealership, the franchisor whether good cause has been established
shall in writing first notify the board and for not entering into or relocating an
each franchisee in that line-make in the additional franchise for the same line-
relevant market area of the franchisor's make, the board shall take into
intention to establish an additional consideration the existing circumstances,
dealership or to relocate an existing including, but not limited to, all of the
dealership within or into that market area. following: [¶] (a) Permanency of the
Within 20 days of receiving that notice or investment. [¶] (b) Effect on the retail
within 20 days after the end of any appeal motor vehicle business and the consuming
procedure provided by the franchisor, any public in the relevant market area. [¶] (c)
such franchisee may file with the board a Whether it is injurious to the public welfare
protest to the establishing or relocating of for an additional franchise to be
the dealership. If within this time a established. [¶] (d) Whether the franchisees
franchisee files with the board a request for of the same line-make in that relevant
additional time to file a protest, the board market area are providing adequate
or its secretary, upon a showing of good competition and convenient consumer care
cause, may grant an additional 10 days to for the motor vehicles of the line-make in
file the protest. When such a protest is the market area which shall include the
filed, the board shall inform the franchisor adequacy of motor vehicle sales and

6
 BMW of North America, Inc. v. New Motor Vehicle Board 162 Cal.App.3d 980 (Cal. Ct. App. 1984)

service facilities, equipment, supply of 1953) 202 F.2d 579, 582, citation omitted.) This
vehicle parts, and qualified service definition is consistent with the California Vehicle
personnel. [¶] (e) Whether the Code, which defines a franchise as a "written
establishment of an additional franchise
agreement between two or more persons" relating
would increase competition and therefore
to the sale and distribution of automotive
be in the public interest."
products. (§ 331.) A "franchise" within the
Section 3062 limits the ability of a franchisor to meaning of the Vehicle Code is thus a contract,
establish or relocate a dealership within an area and as such is subject to the normal rules relating
where the same line-make is already represented. to contracts.
In doing so the section utilizes the term "relevant
(3) The parol evidence rule is a fundamental rule
market area" which is in turn defined in section
of contract law which operates to bar extrinsic
507 as being "any area within a radius of 10 miles
evidence contradicting the terms of a written
from the site of a potential new dealership." Thus
contract. ( Riley v. Bear Creek Planning
under section 3062, any franchisee within 10
Committee (1976) 17 Cal.3d 500, 508-509 [ 131
miles of the site of a proposed new or relocated
Cal.Rptr. 381, 551 P.2d 1213].) It is not merely a
dealership of the same line-make may protest such
rule of evidence but is substantive in scope. (
proposed action. At the hearing on the protest the
Estate of Gaines (1940) 15 Cal.2d 255, 264-265 [
question is whether the existing franchisee
100 P.2d 1055]; see also Witkin, Cal. Evidence (2d
establishes good cause for not allowing the
ed. 1966) Documentary Evidence, § 715, pp. 661-
establishment or relocation of the additional dealer
662; 2 Jefferson, Cal. Evidence Benchbook (2d ed.
within the relevant market area, and section 3063
1982) Parol Evidence Rule, § 32.1, pp. 1121-
sets forth the factors which are to be considered by
1123.) Under that rule the act of executing a
the Board.
written contract, whether required by law to be in
Watkins concedes, as he must, that he was not writing or not, supersedes all the negotiations or
entitled to file a protest of the establishment of the stipulations concerning its matter which preceded
Thousand Oaks-Westlake BMW dealer under or accompanied the execution of the instrument.
section 3062. That proposed dealership was more (Civ. Code, § 1625) Extrinsic evidence cannot be
than 15 miles from Watkins' Camarillo dealership admitted to prove what the agreement was, not for
and thus Watkins is well outside the relevant any of the usual reasons for exclusion of evidence,
market area. At the hearing on the protest Watkins but because as a matter of law the agreement is the
specifically disclaimed any intent to proceed under writing itself. ( Tahoe National Bank v. Phillips
section 3062. Instead, Watkins claims that the (1971) 4 Cal.3d 11, 22-23 [ 92 Cal.Rptr. 704, 480
establishment of a new dealership within Ventura P.2d 320].) Consequently, "in determining whether
990 County would constitute a modification *990 of his substantial evidence supports a judgment,
franchise. The Board agreed with this contention. extrinsic evidence inconsistent with any
In doing so it erred. interpretation to which the instrument is
reasonably susceptible becomes irrelevant; as a
(2) Although a franchise is technically a grant of matter of substantive law such evidence cannot
power by a governmental entity to a private person serve to create or alter the obligations under the
or entity, with respect to the automotive industry a instrument. Irrelevant evidence cannot support a
franchise has been defined as "an agreement judgment." (4) (See fn. 4.) ( Ibid., citations and
between two private entities arising out of the 991 footnotes omitted.)4 *991 (5a) In determining the
`general right to engage in a lawful business, part
rights and liabilities of BMW and Watkins under
of the liberty of the citizen.'" ( National Labor
the franchise agreement the first reference must be
Relations Board v. Bill Daniels, Inc. (6th Cir.

7
 BMW of North America, Inc. v. New Motor Vehicle Board 162 Cal.App.3d 980 (Cal. Ct. App. 1984)

to the written terms of the contract. That the public policy expressed in the Act, and thus
agreement clearly and unequivocally provides that void." We disagree. By virtue of section 3060, a
Watkins was not granted the exclusive right to franchisor may be required to continue existing
deal in BMW products in any particular franchise agreements without modification if a
geographic area and was not limited in the area in modification would substantially affect the
which he could trade. BMW expressly reserved franchisee's sales and service obligations or
the right to appoint other dealers in BMW investment. However, that section in no manner
products, whether located in Watkins' geographic dictates what must be included in a franchise
area or not. This contract language, of course, agreement, and it does not state or imply that a
cannot be reasonably construed to provide franchisor may not reserve the power to appoint
Watkins with the exclusive right to sell BMW new dealers or that a franchise must provide an
products in Ventura County, or in any exclusive trading area to the dealer. The provision
geographical area, and cannot be construed to give of the Act dealing with the appointment of new
him the right to object to the appointment of a new dealers is found in section 3062, and it specifically
dealer 15.2 miles from the site of his dealership. limits the right of an existing franchisee to object
Accordingly, in determining to appoint a new to the appointment of a new dealer to a 10-mile
dealer in the Thousand Oaks-Westlake area, BMW radius. That section not only restricts the right of a
was acting pursuant to, rather than in derogation franchisee to object to the appointment of a new
of, Watkins' franchise agreement. dealer to the 10-mile radius, but it also implicitly
4 Two aspects of the parol evidence rule
recognizes the right of a franchisor to appoint new
dealers, subject of course to the right of an
should be noted here. First, where the
written contract is not an integration, that
existing dealer to show good cause for precluding
is, the complete and final agreement of the such appointment if it is to be within 10 miles of
parties, then evidence of a separate oral the existing dealer. Thus, neither the reservation of
agreement may be introduced as to any the right to appoint new dealers, nor the proposed
matter on which the agreement is silent and appointment of a dealer over 15 miles from
which is not inconsistent with its written Watkins' dealership, is contrary to the public
terms. (See Masterson v. Sine (1968) 68 policy expressed in sections 3060 and 3062.
Cal.2d 222, 226-228 [ 65 Cal.Rptr. 545,
436 P.2d 561].) Second, extrinsic evidence The trial court stated that it would alternatively
may be introduced to explain the meaning find that the proposed appointment of a new dealer
of a written contract and the test for 992 would constitute a modification of Watkins' *992
admissibility is whether the meaning urged franchise by changing his A.O.R.A.O.R. stands
is one to which the written contract terms for area of responsibility, and this concept may be
are reasonably susceptible. (See Pacific briefly explained. Essentially, for internal planning
Gas E. Co. v. G.W. Thomas Drayage etc. purposes, BMW utilizes data from R.L. Polk, Inc.,
Co. (1968) 69 Cal.2d 33, 40 [ 69 Cal.Rptr. which in turn reports annual new car registrations
561, 442 P.2d 641, 40 A.L.R.3d 1373].) As
by post office zip code. Among other things, this
we explain, neither of these aspects of the
information enables BMW to determine whether it
rule is involved here since the meaning
is achieving sufficient market penetration in any
urged by Watkins is directly contrary to the
particular area. For example, BMW regards its
express written terms of his contract.
competition as including Porsche-Audi, Mercedes
Watkins asserted, and the trial court agreed, that Benz, and Volvo. During 1981, in the district of
the reservation in the franchise agreement of the which Watkins is a part, BMW maintained a 13.1
right to appoint additional dealers is "contrary to percent share of this combined market. In contrast,

8
 BMW of North America, Inc. v. New Motor Vehicle Board 162 Cal.App.3d 980 (Cal. Ct. App. 1984)

in the Thousand Oaks-Westlake area BMW The Board and the trial court erred in concluding
obtained only 8.6 percent of that market. This that a change in Watkins' A.O.R. constituted a
indicated that in the Thousand Oaks-Westlake area modification of his franchise agreement. The
BMW was doing very poorly against its A.O.R. concept, as we have explained, is an
competition and this was one of the reasons BMW 993 entirely internal planning *993 mechanism utilized
determined to appoint a dealer in that area. by BMW, and is only one of many such
mechanisms. BMW is free to use whatever
Another purpose for which the Polk data may be
planning mechanisms it desires in determining
used is the estimation of required service and parts
how to market its products. But these internal
facilities. From this data BMW derives a figure
considerations are not relevant and are not
known as the U.I.O., an abbreviation of units in
admissible to establish a meaning of a written
operation. The U.I.O. figure is derived from a
contract where the written contract is not
study of past registration figures together with
reasonably susceptible of the meaning urged. (See
projected sales levels. The number of units in
Blumenfeld v. R.H. Macy Co. (1979) 92
operation in proximity to a dealer's location is one
Cal.App.3d 38, 44-45 [ 154 Cal.Rptr. 652].)
of the factors which BMW considers in
Watkins' franchise agreement does not refer at all
determining the levels of service and parts
to an A.O.R. or to U.I.O.'s. The agreement does
facilities a dealer should maintain to provide
not suggest that Watkins' right to market BMW
adequately for the demand for services and parts.
products is to be in any manner exclusive in any
It is not, however, the only factor considered.
geographical area. In fact it states just the
As we have noted, BMW utilizes the A.O.R. opposite, namely that it is not exclusive and that
concept for some internal planning purposes. BMW reserves the right to appoint other dealers
Under this concept every geographic area whether in Watkins' geographic area or not. The
denominated by a zip code is assigned to an decision of the Board disregarded the terms of
A.O.R. for an existing dealer. The total group of Watkins' franchise agreement and imposed
zip code areas assigned to a particular dealer is contractual obligations upon BMW to which it had
that dealer's A.O.R. By design, these areas of never consented and which no interpretation of the
responsibility throughout the United States are contract could support. In short, the fact that
contiguous. For this reason the size of a particular BMW utilizes the A.O.R. concept for internal
A.O.R. is dependent upon the distance between planning purposes does not give Watkins any
BMW dealers. Where the distances between exclusive right within his A.O.R.
dealers are vast, the A.O.R.'s involved are
From this discussion it is apparent that in
correspondingly vast; where the distances between
precluding BMW from appointing a dealer in the
dealers are small, the A.O.R.'s are also small.
Thousand Oaks-Westlake area the Board acted in
Since all geographic areas in the country are
excess of its jurisdiction. The Legislature has
included within some A.O.R., it follows that the
acted to regulate the relationship between
appointment of a new dealer will necessarily alter
franchisors and franchisees in the automobile
the A.O.R.'s of the nearest dealers. Indeed, BMW
industry, but has done so in a limited manner
concedes that the A.O.R. for the new Thousand
pursuant to clearly articulated and specifically
Oaks-Westlake dealer will include areas which
expressed principles. Those principles provide that
were previously within the A.O.R.'s of Watkins in
a franchisor may be required to continue
Camarillo and Bob Smith in Canoga Park.
unmodified an existing franchise agreement, or
may be precluded from establishing or relocating a
dealer within 10 miles of an existing dealer.

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 BMW of North America, Inc. v. New Motor Vehicle Board 162 Cal.App.3d 980 (Cal. Ct. App. 1984)

Beyond those two qualifications (and others not franchises absent statutory enablement, the Board
relevant here) the Board has been given no power exceeded its jurisdiction. (6) It is fundamental that
to regulate the relationship between franchisors an administrative agency has only such power as
and franchisees, and with those exceptions the rule has been conferred upon it by the constitution or
is still unfettered competition and freedom of by statute and an act in excess of the power
contract. In precluding BMW from establishing conferred upon the agency is void. (See Ferdig v.
the Thousand Oaks-Westlake dealer the Board State Personnel Bd. (1969) 71 Cal.2d 96, 103-104
disregarded rather than enforced the franchise [ 77 Cal.Rptr. 224, 453 P.2d 728]; California State
contract between Watkins and BMW, and gave Restaurant Assn. v. Whitlow (1976) 58 Cal.App.3d
Watkins something that neither his contract nor 340, 346-347 [ 129 Cal.Rptr. 824].) A writ of
the act gave him, namely, an exclusive trading administrative mandate will lie to correct acts in
territory far in excess of his relevant market area. excess of jurisdiction. (Code Civ. Proc., § 1094.5,
subd. (b).) (5b) Accordingly, the trial court erred
In sum, by the nature of BMW's internal planning
in denying the petition of BMW for a writ of
formula, the creation of any new dealership would
mandate.
necessarily change the A.O.R. of some existing
dealer and hence also the units in operation in his The judgment of the trial court is reversed and the
zone. If Watkins' position were sustained, BMW cause is remanded to the trial court with directions
could never create a new dealership without to issue a peremptory writ of mandate directing
establishing good cause before the Board. The the respondent New Motor Vehicle Board to
result would be that existing BMW dealers, like vacate its decision granting the protest of Hal
Watkins, in contravention of the express terms of Watkins Chevrolet, Inc. doing business as Hal
their franchises, would be accorded a perpetual Watkins BMW, and to issue a new decision
994 territorial monopoly. The short *994 answer is that denying said protest.
the appointment of a new dealer does not change a
Puglia, P.J., and Carr, J., concurred.
single provision of Watkins' franchise and
consequently cannot constitute a modification. Petitions for a rehearing were denied January 14,
The power of the Board arises under the statute 1985, and the petitions of all respondents for a
only when franchisor improperly "terminate[s] or hearing by the Supreme Court were denied March
refuse[s] to continue any existing franchise" or 13, 1985.
impermissibly "modif[ies] or replace[s] a
995 *995
franchise with a succeeding franchise." (§ 3060.)
None of the statutory predicates occurred here.
Instead, in violation of the parol evidence rule,
Watkins and the Board would rewrite the franchise
to read that BMW reserves the right to create other
dealers in the present dealer's geographic area,
"provided that the new dealership does not change
the area of responsibility or units in operation."
Having rewritten the agreement, the Board then
finds that BMW modified the recast franchise
without good cause. Because there was no
competent evidentiary basis for that finding and
because the Board has no general power over

10
BMW of North America, Inc. v. New Motor Vehicle Board 162 Cal.App.3d 980 (Cal. Ct. App. 1984)

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